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Not the least of the things bugging the stock market in the past month or so has been the prospect of a fresh Middle Eastern war erupting between an intractable Iran determined to get its oily hands on nuclear weapons and an Israel equally determined to prevent its sworn enemy from doing so. The recent bloody skirmish in Gaza between Israel and Iran's proxy, Hamas, was widely viewed as a dress rehearsal for the main event.

An uneasy truce went into effect last week. What we found particularly noteworthy was less the flare-up itself than the triumphant reaction to it by Hamas and its friends and followers. Mass delusion, to be sure, is no stranger to Wall Street—remember that dotty dot-com stretch of the late '90s and early 2000s, when the Nasdaq was supposed to double in value every year until the end of time without breaking a sweat? But last week this weird condition made an unexpected appearance far from the canyons of capitalization, on the sun-swept fraught border separating Israel and Gaza.

What occasioned the delusional outbreak in which the inhabitants lose their grip on reality was the resumption of hostilities between Hamas, which the U.S. has labeled a terrorist outfit that nonetheless rules Gaza, and Israel. Hamas, eagerly equipped by Iran with long-range missiles that it dutifully and enthusiastically lobbed at Israel, prompted the Israelis to retaliate with some 1,500 airstrikes over eight days that reduced a good part of Hamas' infrastructure, including rocket-launching sites and police stations, to rubble and left some 70,000 Israeli troops camped on the border for a possible offensive.

When the assault ended—for the nonce, anyway, thanks to pressure on the combatants by the U.S. and Egypt—the death toll had mounted to 162 Palestinians, including 71 civilians, and five Israelis. The disparity in the damage, whether measured in fatalities or facilities, is formidable testimony as to who got the better of the exchange, making it all the more ironic when Hamas claimed victory. If smoldering ruin and wreckage constitutes victory, one can only wonder what wondrous outcome mass delusion would assign to an even more disastrous defeat.

That the bulk of what passes for international punditry solemnly took the bait and agreed that Hamas has come out the winner, for reasons too convoluted and abstruse to be credible, simply suggests that these wiseacres fell victim to the same berserk delusion that befell the population at large.

We may have missed it, but what was sorely absent from the "expert" commentary (our favorite definition of an "expert" is anyone 50 miles away from home) was, what was Israel or, for that matter, any country supposed to do when it suddenly found itself on the receiving end of hundreds of deadly missiles sent aloft with malice aforethought by a terrorist group pledged to remove it from the face of the earth? Make nice and say, "Please, don't"?

For their part, the Israelis miserably failed to persuasively counter Hamas' claims of triumph that were so blatantly in contrast to what actually happened when the two sides clashed. Israel's brass evinced more than a touch of confusion on how to respond to the pressure for a cease-fire by Washington and Cairo, apparently woefully unprepared to show its cards. Nothing if not canny, Hamas lost no time in exploiting the opening for all it was worth.

Illusions, though, whether malign or benign, enjoy a limited life span. And once the notion that Hamas had the better of the fight wears off and reality rears its unwelcome head, the mood on the streets and alleyways of Gaza seems destined to darken. That doesn't manifestly bode well for an enduring peace in that restive strip in the desert once Iran restocks Hamas' missile trove, so we wouldn't be in any hurry to scratch it off your stock-market worry list.

AN OBVIOUS P.S. TO THE above is that although, as we've been saying, it seems like forever now that oil is in abundant supply, petro shares have gotten something of a new lease on life, good enough for a dead-cat bounce or two should the truce in Gaza prove tentative. So this likely is not the most opportune moment to short the sector. Or, as Barclays more diplomatically put it, "while supply and demand fundamentals in the oil market are fairly balanced at the moment" (frankly this strikes us as typical British understatement, thanks to fracturing and all that), the uncertainty about how the Gaza settlement plays out suggests that the "upside risks outweigh those to the downside."

Over the longer pull, however, the International Energy Agency predicted that the U.S. would overtake the Russians as the global leader in gas output by 2015 and a few years later would take the No. 1 spot in oil now held by Saudi Arabia. Over all, according to the IEA's projections, the U.S. should become virtually self-sufficient in energy by 2035. To be sure, the cost of extracting more oil from deep wells in some inhospitable waters like those in the Arctic and offshore Brazil has risen inexorably, so the price at the pump is apt to continue its tradition of rising like mercury and declining like molasses.

Meanwhile, as the market resumed its buoyant ways last week, gold awoke from its fairly extended stupor that had seen it trading in the low $1,700s an ounce after peaking at $1,921.15 more than a year ago, in September 2011. What goosed the precious metal is that Deutsche Bank fortuitously rubbed its crystal ball and forecast that gold would top $2,000 an ounce next year, citing the worldwide resort to the printing presses to provide economic stimulus to flagging economies. Notably big buyers have been the ETFs. And while we're still shy of anything resembling a real gold rush, by our reckoning you can do a lot worse than gild your portfolio with some mining shares.

ONE THING THAT ELUDES even the sharpest-eyed Wall Street forecaster is the weather. (But then meteorologists tend to have that trouble as well.) It's no secret that our blessed nation is prey to the worst drought in many a moon, and the latest news from the Department of Agriculture's Drought Monitor (somehow we never realized such a thing existed) is that this plague of the Plain States has worsened. More specifically, 60.1% of the states are suffering some form of drought, up from 58.8% the previous week.

"The places that are getting precipitation, like the Pacific Northwest, are not in drought, while areas that really need the rainfall aren't getting it," a meteorologist with the National Oceanic and Atmospheric Administration's National Climate Center (don't ask to repeat that attribution while we're chewing) told the AP. He conceded that he knew of no clear, scientific reason for why the drought was lingering; nor could he estimate how long it might last.

As intimated, the most severe of the five categories measured by the Drought Monitor centers over the Great Plains. Nebraska is especially in deep drought, but it and the Dakotas to the north can anticipate having to cope with even more, and more severe, drought. Kansas is also feeling the climatic pain; rainfall in the southern part of the state has been 25% of normal over the past six months.

It has been a tough year for farmers in the region already hurting from disappointing corn and soybean crops and now facing less than a bumper showing for winter wheat. The Ag people report that nearly a quarter of the winter wheat that germinated is in poor or very poor condition. Woe aplenty, obviously, for the tillers of the soil. And bad news, too, we infer, for consumers, hardly rolling in the long green these days and who will have to fork over that much more for their victuals, as well as food packagers, whose margins seem at risk.

None of which, we can say, will come as a great surprise to Jeremy Grantham of GMO, whose quarterly letters are inevitably a thing of joy to peruse. His latest epistle, like all of Jeremy's commentaries, is perceptive and sensible, qualities that are rare indeed in investment pieces, no matter how big-picture they purport to be. His latest effort bears the title "On the Road to Zero Growth," and that's exactly what it postulates.

This glorious nation's gross domestic product has compiled an unparalleled growth rate of more than 3% a year over the past hundred years. Well, says Jeremy, that's gone forever. From here on, GDP seems destined to rise about 1.4% a year and, adjusted for inflation, a scant 0.9% a year. In explaining how he arrives at that figure and some of its less-than-cheerful implications, he offers what amounts to a remarkable seminar (we trust that doesn't scare you) on population growth or lack of it, productivity trends for both manufacturing and service sectors, rising resource costs, the effect of climate change, and why investors should be aware of "a Fed whose policy is premised on the idea that 3% growth for the U. S. is normal and "led by a guy who couldn't see a 1-in-1,200-year housing bubble."

Increasingly, Jeremy believes, growth will be qualitative and limited to services, if only because manufacturing will bear the brunt of the rising input costs. He sees the rest of the developed world growing less than here and global growth tapering off from its recent peak of 4.5% in 2006 and 2007, to 3% by 2030 and to 2%-2.5% by 2050.

It's a thoroughly fascinating and extraordinary job of research and pondering. We're rapidly running out of space, so all we can offer is a faint sample of Jeremy's findings and extrapolations. But please don't fret: The complete letter is available to one and all at gmo.com